1976 (9) TMI 9 - HC - Income Tax

Summary

Issues Involved
1. Legality of notice under Section 148 of the Income-tax Act, 1961.
2. Validity of the reasons for reopening the assessment under Section 147(b) of the Income-tax Act, 1961.
3. Jurisdiction of the Income-tax Officer (ITO) in issuing the notice.

Issue-wise Detailed Analysis

1. Legality of Notice under Section 148 of the Income-tax Act, 1961
The petitioner challenged the legality of the notice dated November 14, 1975, issued by the ITO under Section 148 of the Income-tax Act, 1961, for the assessment year 1972-73. The petitioner contended that there was a full and true disclosure of all materials and relevant facts necessary for the said assessment year, and that there has been no escapement of income. The court found that the ITO did not record the reason for his belief or satisfaction for the issue of the notice at the time it was issued. This lack of recorded reason indicated that the ITO had no reason to believe that the income chargeable to tax had escaped assessment.

2. Validity of the Reasons for Reopening the Assessment under Section 147(b) of the Income-tax Act, 1961
The ITO claimed that the decision of the Supreme Court in Bombay Dyeing and Manufacturing Co. Ltd. [1974] 93 ITR 603 provided the information necessary to reopen the assessment. However, the court noted that the principle that gratuity liability is a contingent liability, as established in Metal Box Co. of India Ltd. v. Their Workmen [1969] 73 ITR 53, was already known to the ITO. The Supreme Court in Bombay Dyeing did not introduce any new principle of law but reaffirmed the existing principle. Therefore, the court concluded that the decision in Bombay Dyeing could not be considered new information that would justify reopening the assessment.

3. Jurisdiction of the Income-tax Officer (ITO) in Issuing the Notice
The court examined whether the ITO had jurisdiction to issue the notice under Section 148. It was found that the ITO did not record any reason for his satisfaction for the issue of the notice, and there was no evidence that the ITO acted on the basis of the Supreme Court's judgment in Bombay Dyeing at the time of issuing the notice. The court emphasized that the existence of reasonable grounds for the belief that income had escaped assessment is a prerequisite for the ITO to have jurisdiction to issue such a notice. Since no such grounds were present, the court ruled that the ITO had no jurisdiction to issue the impugned notice.

Conclusion
The court quashed the impugned notice under Section 148 and issued a writ in the nature of certiorari. Additionally, a writ in the nature of prohibition was issued, commanding the ITO not to proceed with the reassessment of the petitioner's income for the assessment year 1972-73. The rule was made absolute, and there was no order as to costs.